The impact of Sharia compliance on attracting investments: empirical evidence from GCC

Abstract

Purpose

This study aims to demonstrate the impact of Sharia-compliance (SC) on attracting various types of investment, including foreign, family, institutional, royal, government and large individual investments.

Design/methodology/approach

The sample comprises 168 nonfinancial companies listed in the financial markets of the Gulf Cooperation Council (GCC) countries from 2009 to 2019, totaling 1,848 observations. The researchers used the ordinary least squares panel data method, with additional tests conducted using the two-stage least squares method.

Findings

The results indicate a negative relationship between SC and both foreign and institutional investments. Conversely, there is a positive relationship between SC and both family investment and large individual investor investment. Furthermore, the study found no significant relationship between SC and both government and royal investments (RIs).

Practical implications

The study enhances understanding of the role of Sharia-compliant companies in attracting investment. For managers of such companies, there is a need to make their firms more appealing to diverse investor types. Current and potential investors in Sharia-compliant companies should be aware of the investor nature controlling these companies. This study is beneficial for policymakers and regulators to assess the impact of Islamic Sharia-imposed restrictions on financial decision-making in companies. Policymakers should develop and monitor indicators of companies’ adherence to SC law in the six GCC countries and should also issue rules to enhance Sharia-compliant companies’ commitment to governance and transparency.

Originality/value

To the best of the authors’ knowledge, this study is the first of its kind to address the impact of SC on attracting different investment types. It includes six distinct investment types, notably RI, a significant variable in GCC countries’ business environment due to the considerable wealth and influence of royal family members.

Citation

Tawfik, O.I., Elmaasrawy, H.E. and Hussainey, K. (2024), "The impact of Sharia compliance on attracting investments: empirical evidence from GCC", International Journal of Islamic and Middle Eastern Finance and Management, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IMEFM-02-2024-0060